Paper-rich startup employees look for ‘pre-wealth’ help to lock down stock options

For Silicon Valley’s potential startup millionaires, compensation packages staked on future promises of wealth are where the action is. But what happens when these employees get laid off or have to leave before an exit?

When Wouter Witvoet left a startup that he had joined as employee No. 4, he felt relatively prepared, having set aside $50,000 to exercise his available stock options, only to be informed by HR that he was also liable to pay taxes on said options so he was about $1.8 million short with 90 days to settle up.

“I ended up losing my entire equity stake,” Witvoet tells TechCrunch.

Witvoet later founded Secfi, which is just one of a handful of entities looking to establish itself in the hot “pre-wealth” management space with what it calls forward purchase agreements, enabling startup employees to exercise stock options and wait until an IPO or exit to make payments.

Looking to leverage paper wealth is hardly a new trend, but more institutional investors are eyeing the non-traditional opportunity as high-growth startups get harder to access. For some of the hedge funds and private equity funds playing around in this space, these deals represent a back door into the paydays of mature IPO-bound startups, at a discount.

There are a number of players with hundreds of millions at play. Section Partners has $120 million in committed capital and calls its option exercise financing a “lifeline” for employees facing option expiration. Troy Capital Group’s Quid has partnered with Oaktree Capital Management on a $200 million fund. The Bay Area ESO Fund has been providing this financing to startup employees since its founding in 2012.

Secfi, which has raised $7 million in venture funding from investors, including Rucker Park Capital, Social Leverage and the Weekend Fund, had previously been acting as a go-between for multiple firms, but is announcing today that they’ve partnered with New York hedge fund Serengeti Asset Management, locking down a $550 million debt facility.

Taking out run-of-the-mill loans to exercise options with the assumption that a great exit inevitably awaits your startup is an awful call. These forward purchase agreements are backed by the options themselves so the recourse is limited to the options in question. If your startup succeeds, you’ll be paying the company back the principal, plus an interest rate and an equity rate, i.e. a good chunk of your upside. If your startup endures a WeWork-like fiasco, no one is coming after your car.

With more late-stage startups pumping the brakes on spending and eyeing layoffs, there aren’t many great resources for affected employees looking to see what their options are worth. Many end up finding themselves going down Quora rabbit holes, browsing for information that is rarely one-size-fits-all. Educating on an individual basis has its merits, but most of these options-financing firms are also trying to get HR departments at companies to do a bit of the marketing for them through partnerships with the startups themselves.

As more money gets directed from these behemoth funds toward “pre-wealth” financial services, you can expect to see more startups like Secfi popping up, hoping to offer potential startup millionaires a platform that extends beyond the pathway to options’ upside.

Don’t be a selfless startup

One of the enduring truths of big companies is that they aren’t innovative. They are “innovative” in the marketing sense, but fail to ever execute on new ideas, particularly when those ideas cannibalize existing products and revenues.

So it often takes a real competitor to force these incumbent, legacy businesses to evolve in any meaningful way. Usually that change leads to disruption, in the classic way that Clayton Christensen describes in “The Innovator’s Dilemma.” An upstart company creates a new technology or business model that is better for an under-served segment of a market, and as that company improves, it competes directly with the incumbent and eventually wins over its market with a vastly superior product.

Unfortunately, real life isn’t so easy, as WeWork and MoviePass have shown us over the past few years.

In both cases, there were incumbents. In movie theaters, you had AMC and the like, which built a business model around ticket sales (shared with movie studios) and food/beverage concessions that targeted occasional customers at a high price point. Meanwhile, in commercial real estate, you had large landowners and family holders who demanded extremely long rent terms at high prices, often with personal financial guarantees from the CEO of the tenant firm.

Google acquires AppSheet to bring no-code development to Google Cloud

Google announced today that it is buying AppSheet, an eight-year-old no-code mobile-application-building platform. The company had raised more than $17 million on a $60 million valuation, according to PitchBook data. The companies did not share the purchase price.

With AppSheet, Google gets a simple way for companies to build mobile apps without having to write a line of code. It works by pulling data from a spreadsheet, database or form, and using the field or column names as the basis for building an app.

It is integrated with Google Cloud already integrating with Google Sheets and Google Forms, but also works with other tools, including AWS DynamoDB, Salesforce, Office 365, Box and others. Google says it will continue to support these other platforms, even after the deal closes.

As Amit Zavery wrote in a blog post announcing the acquisition, it’s about giving everyone a chance to build mobile applications, even companies lacking traditional developer resources to build a mobile presence. “This acquisition helps enterprises empower millions of citizen developers to more easily create and extend applications without the need for professional coding skills,” he wrote.

In a story we hear repeatedly from startup founders, Praveen Seshadri, co-founder and CEO at AppSheet, sees an opportunity to expand his platform and market reach under Google in ways he couldn’t as an independent company.

“There is great potential to leverage and integrate more deeply with many of Google’s amazing assets like G Suite and Android to improve the functionality, scale, and performance of AppSheet. Moving forward, we expect to combine AppSheet’s core strengths with Google Cloud’s deep industry expertise in verticals like financial services, retail, and media  and entertainment,” he wrote.

Google sees this acquisition as extending its development philosophy with no-code working alongside workflow automation, application integration and API management.

No code tools like AppSheet are not going to replace sophisticated development environments, but they will give companies that might not otherwise have a mobile app the ability to put something decent out there.

The robot homecoming is upon us

Robots were everywhere at CES, as has been the case for at least a decade. But there’s a different tenor to the robots shown off at the recent annual consumer tech event: they’re designed for home use, and they’re shipping products, not just concepts intended strictly for trade show glam.

Home robots have already had a few false starts, including some high-profile flare-outs like Anki and previous CES darling Kuri (despite the backing of global technology giant Bosch) . But other robots, including autonomous vacuums, have already carved out niches for themselves within the domestic milieu. Between slow-burn but now mature categories and the sheer volume of newer products jumping in to establish new beachheads, it now seems certain we’re on a path at the end of which lie hybrid companion and functional robots that will become common household items.

Industrial to residential

One of the biggest signs that home robotics is gaining credibility as a market is the fact that companies which have found success in industrial technology are branching out. At CES, I spoke to Elephant Robotics founder and CEO Joey Song, who was at the show demonstrating MarsCat, a fully developed robotic cat designed to be a companion pet with full autonomous interactivity, similar to Sony’s Aibo.

Equinix is acquiring bare metal cloud provider Packet

Equinix announced today that it is acquiring bare metal cloud provider Packet, the New York City startup that had raised over $36 million on a $100 million valuation, according to PitchBook data.

Equinix has a set of data centers and co-location facilities around the world. Companies that may want to have more control over their hardware could use their services, including space, power and cooling systems, instead of running their own data centers.

Equinix is getting a unique cloud infrastructure vendor in Packet, one that can provide more customized kinds of hardware configurations than you can get from the mainstream infrastructure vendors like AWS and Azure. Company COO George Karidis described what separated his company from the pack in a September, 2018 TechCrunch article:

“We offer the most diverse hardware options,” he said. That means they could get servers equipped with Intel, ARM, AMD or with specific nVidia GPUs in whatever configurations they want. By contrast public cloud providers tend to offer a more off-the-shelf approach. It’s cheap and abundant, but you have to take what they offer, and that doesn’t always work for every customer.

In a blog post announcing the deal, company co-founder and CEO Zachary Smith had a message for his customers, who may be worried about the change in ownership. “When the transaction closes later this quarter, Packet will continue operating as before: same team, same platform, same vision,” he wrote.

He also offered the standard value story for a deal like this, saying the company could scale much faster under Equinix than it could on its own, with access to its new company’s massive resources, including 200+ data centers in 55 markets and 1,800 networks.

Sara Baack, chief product officer at Equinix, says bringing the two companies together will provide a diverse set of bare metal options for customers moving forward. “Our combined strengths will further empower companies to be everywhere they need to be, to interconnect everyone and integrate everything that matters to their business,” she said in a statement.

While the companies did not share the purchase price, they did hint that they would have more details on the transaction after it closes, which is expected in the first quarter this year.